The (high) cost of paying cash

People always fight me on this.

They say “cash is king”

Well, babycakes, the king is dead.

Financial goo-roos are always yammering about the benefits of paying cash… and have done an excellent job brainwashing the masses into thinking cash has no value. Meaning, if you pay cash, you’re getting a deal.

But there are no deals. Not in any industry.

Or, as they say… there is no magic, only magicians.

Here’s what I mean:

If cash had no value, banks would literally cease to exist.

Think about it. How could banks “get away with” charging people interest if cash had no value?

Still…some people got “wise” to the idea of paying other people interest…

…and started teaching this idea that all you had to do is pay cash for everything. Some simple math should tell you this ain’t gonna work out over the long-term:

Save up $1. Spend $1. How much do you have left?

Now, do this for 50 years. How much money left over?

More:

If you stuff moolah into a bank, and just let it sit there…earning whatever the bank pays you, it eats up 7.62% of the value of that savings in 5 years. In 10 year? 16.32%. 20 years? 31.36%. And in 30 years…

…42.69%

These percentages represent the volume of interest you give up by letting your money sit around and do nothing… like a welfare recipient.

You can check this yourself by firing up your favorite spreadsheet and running a time value of money calculation (present value of future savings formula, discounted at current bond rates). The discount rate is basically a guaranteed interest rate you could earn in the marketplace.

By NOT earning it, the value of your money erodes, buys less stuff than it used to… and even though you end up with some savings…

…you have much less than you would have had. It’s kinda like if you lost money in an investment…but didn’t lose all of it. You still have savings… just not as much.

It doesn’t initially FEEL like you’ve lost anything… but you have due to opportunity cost.

This is what makes it so insidious.

Time is a bitch to everyone. It slowly chips away at value.

This is why being a productive human being is so important.

When I look back on it, I have to chuckle. I can’t believe I didn’t done saw it from the very beginning.

What’s the solution?

You do exactly what banks do. You place a value on yourself… your productive efforts… and then compensate yourself for the use of your own savings. But you don’t just do it by building up savings, borrowing it out and then repaying it…

All that does is cause you to lose interest on the money that was in your savings account.

You set up a designated self-financing system.

The idea is to recapture opportunity cost by earning interest on your deposits while you are using the money for other things.

This is the “secret” so many businesses have used in the past (and continue to use under the name “economic value added”).

What’s that you say? You say I’m bullshitting you?

Nah. I would never do that.

No really. Check out these mangos:

All them hippies shopping at Whole Foods… They be “victims” of capitalism. See, when Whole Foods sets up a new location, they don’t just dump cash into it.

They lend money to that new “branch” and then force the new location to turn a profit. How? The business has to pay itself back, WITH INTEREST.

If it doesn’t, baby sinks into the bathwater. There’s a special system they set up to manage it all.

Why do this? Because they know cash has value and that “just paying cash” for things is… well… dumb.

They understand the time value of money.

Do you?

If so, then you absolutely should be doing the same thing.

And, if you don’t, it might be time to learn.

Either way, when you hop on my email list, I show you how to set up your own system:

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David Lewis

This post brought to you by //The Rogue Agent//. David has been a life insurance agent, and worked with some of the oldest and most respected mutual life insurance companies in the U.S., since 2004. Learn more about him and his business, here.